The Bakken Is Booming Once Again!

April 3, 2018

The Permian has been stealing headlines and analyst attention over the past year, and rightly so, as it’s the only U.S. shale play that continued to grow even when all others suffered during the downturn.

But higher oil prices over the past few months have prompted drillers to grow production not only in the Permian, but also in the older and more developed plays such as the Bakken in North Dakota and Montana.

The Bakken crude oil production has started to grow again and is expected to beat in the first half of 2018 its own production record of 1.23 million bpd from December 2014.

The Bakken was one of the first U.S. shale basins in which drillers started to pump oil via fracking. Its advantage is that the geology is better known than that of the Permian. Its disadvantage, compared to the Permian, is that its sweetest spots may have already been pumped out. Another disadvantage is that the Bakken has higher breakevens than the top areas in the Permian, making its production more susceptible to oil price swings.

Yet, the Bakken oil production is currently rising, although the growth is overshadowed by the Permian boom.

The number of active drilling rigs in North Dakota is currently at 60, data by the North Dakota Industrial Commission shows. This is way below the 190 active rigs in early April 2014, but double the 29 rigs in April 2016.

The EIA expects production in the Bakken to rise this month by 12,000 bpd to 1.223 million bpd, although the growth pace would be much slower than that in the Permian.

The Bakken production is set to beat in H1 2018 the December 2014 record of 1.23 million bpd, Lynn Helms, director of the North Dakota Mineral Resources Department, told Bloomberg earlier this year.

“Everything points to more rigs, more frack crews, more activity in North Dakota,” Helms said.

Continental Resources, one of the largest operators in the Bakken, said in February that its Bakken net production reached an all-time high in Q4 2017 averaging 165,598 boepd, up 58 percent over Q4 2016.

In January, Continental Resources CEO Harold Hamm told CNBC that Bakken’s “demise was over-exaggerated” and that “the Bakken is back stronger than ever”.

“The technology’s worked better there than it has anywhere else. We’re still in the third inning of the Bakken development,” Hamm said.

Another shale pioneer and tycoon, Mark Papa, disagrees—he thinks that the Bakken may have little prime spots left.

Papa, currently chairman and CEO at Permian-focused Centennial Resource Development, said in a presentation in November 2017 that “Even in a constructive oil price environment, US oil growth will be more tepid than most people are predicting.” The primary reason for his not-so-rosy prediction is the “lack of remaining Tier 1 geologic quality drilling locations in the Bakken and Eagle Ford” and a lack of new substantial resource plays to boost the Bakken and Eagle Ford.

The Bakken and Eagle Ford production will grow, but much less than expected, Papa said.

Despite expectations of growth in the Bakken, operators will not be rushing to it, like they have been doing in the Permian, analysts say.

“I wouldn’t say it’s back. I would say you have core players in the Bakken that are running with it, that it was their baby and that’s going to drive it,” Trisha Curtis, president and co-founder of energy analytics and advising firm PetroNerds, told Investor’s Business Daily last week.

While activity is rebounding in the Bakken, it “will be incredibly sensitive to price, the most sensitive of the big three oil plays,” Benjamin Shattuck, research director for Wood Mackenzie’s Lower 48 unit, told Investor’s Business Daily.

According to the Dallas Fed Energy Survey from March 2018, the average breakeven price to profitably drill a new well in the Bakken is $50, according to executives from 65 E&P firms. The range of responses was $40-$60, the narrowest range of all, narrower than even the Midland in the Permian which has the lowest average breakeven point at $47, but the range of responses varies from $20 to $70.

At the current oil prices at WTI at around $65, the Bakken has good chances to beat its production record this year, if oil prices hold on to around the $60 handle.